Could an equipment owner recover sales tax paid before later deciding to sell and lease back the unused equipment?

Subject

Sale/Leaseback of Tangible Personal Property

Plain-English summary

The equipment owner was not entitled to a refund of sales tax paid on its original purchases. It bought the equipment for its own tank-farm use, not for resale. A later sale to a lessor and taxable leaseback would be a separate transaction.

The fact that the equipment had not yet been placed in operation did not convert the original retail purchase into a resale purchase or create impermissible double taxation.

What this means for you

Sale-leaseback planning after acquisition does not retroactively change the tax character of the original purchase. Resale status must exist and be documented when the property is bought.

Common questions

Did nonuse before the leaseback support a refund? No.

Was taxing both the purchase and later lease considered duplication? No; they were separate taxable privileges.

Could future invoices be assigned to the lessor for resale treatment? The ruling notes that possibility but denied refunds for earlier purchases.

Citations and references

• Fla. Stat. §§ 212.02(15)(a), (16)(a), 212.05(1)(a), 212.06(1)(a), 212.07(1)(b), 212.12(12), and 213.22
• Fla. Admin. Code r. 12A-1.038(1)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-028

Original ruling text

May 02, 1994

Re: TAA 94A-028
Sales Tax Refund; Sale/Leaseback of Tangible Personal
Property
Sections 212.02(15)(a), (16)(a); 212.05(1)(a);
212.06(1)(a); 212.07(1)(b); and 212.12(12), F.S.
Rule 12A-1.038(1), F.A.C.

Dear :

This is in response to your letter dated October 22, 1993,
in which you requested the issuance of a Technical Assistance
Advisement (TAA) on a sales tax refund issue in relation to a
proposed transaction whereby XXXXX would sell tangible personal
property that it owns to XXXXX. XXXXX (hereinafter "Lessor")
would subsequently lease the property back to XXXX (hereinafter
"Equipment Owner"). To assist in arriving at a conclusion you
furnished the following facts:

"Recently [Lessor] was given the opportunity to lease a $4
million dollar tank farm facility to [Equipment Owner] in
the [S]tate of XXXXX. The construction of the facility
began in XXXX, and is expected to be completed and in
operation by XXXXX. At this point, [Equipment Owner] is
considering entering into a sale/leaseback transaction with
[Lessor] to lease the facility over a period of seven
years. For federal income tax purposes this transaction
will be considered a `True Lease', so the [Lessor] ... will
take the depreciation deduction and the [Equipment Owner]
... will deduct their lease payments.

"Because the decision to enter into the sale/leaseback
transaction was not made prior to the time [Equipment
Owner] began purchasing equipment for the tank facility,
[Equipment Owner] properly paid Florida sales tax on their
purchases. Obviously, now that [Equipment Owner] has
decided to lease the equipment rather than own it, sales

tax should not have been paid on the original equipment
purchase. According to Florida sales tax regulations, if
[Lessor] leases the facility to [Equipment Owner], sales
tax is due on each rental payment.

"Assuming the decision is made to lease the facility,
[Equipment Owner] can assign all future invoices to the
lessor, so [Lessor] can purchase the equipment exempt from
tax under its resale exemption certificate. However,
[Lessor] requests a determination on whether [Equipment
Owner] can receive a refund for the sales tax already paid.
If a refund is not issued, [Equipment Owner] would end up
paying sales tax twice on the same equipment if they
entered a lease agreement. After discussing the
possibility of double taxation with [Equipment Owner], it
appears highly unlikely that they will agree to the
sale/leaseback unless a sales tax refund in (sic) obtained.

"When making your determination, please keep in mind that
this facility is not yet operational. [Lessor] feels that
an important point in this issue is that equipment already
purchased by [Equipment Owner] has not been used in their
business. [Lessor] concedes that if the facility was
operational, a `double tax' situation would arise as a
result of a sale/leaseback transaction.

"Attached please find a copy of TAA #84A-031 which you
wrote in 1984 in response to a similar situation. Although
the facts are not entirely the same, [Lessor] feels that
based on this advisement, [Equipment Owner] should be
entitled to a full refund for sales taxes paid...."

The following statutory and regulatory cites and subsequent
discussion and opinion will not specifically address the
application of sales tax to the lease of tangible personal
property. As a Florida dealer, Lessor is aware that the gross
proceeds derived from the lease of tangible personal property
that is located in this state are subject to sales tax.

STATUTORY/REGULATORY AUTHORITY

Section 212.02, F.S., provides in part:

"(15)(a) Retail sale' or asale at retail' means a sale
to a consumer or to any person for any purpose other than
for resale in the form of tangible personal property or
services taxable under this part, and includes all such
transactions that may be made in lieu of retail sales or
sales at retail.

"(16) `Sale' means and includes:
"(a) Any transfer of title or possession, or both,
exchange, barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration."

Section 212.05, F.S., provides in part:

"(1) ... [A] tax is levied on each taxable transaction or
incident, which tax is due and payable as follows:
"(a)1.a. At the rate of 6 percent of the sales price of
each item or article of tangible personal property...

Section 212.06(1)(a), F.S., provides in part:

"The aforesaid tax at the rate of 6 percent of the retail
sales price as of the moment of sale, 6 percent of the cost
price as of the moment of purchase, or 6 percent of the
cost price as of the moment of commingling with the general
mass of property in this state, as the case may be, shall
be collectible from all dealers as herein defined on the
sale at retail, the use, the consumption, the distribution,
and the storage for use or consumption in this state of
tangible personal property or services taxable under this
part...."

Section 212.07(1)(b), F.S., provides in part:

"A resale must be in strict compliance with the rules and
regulations[.]..."

Section 212.12, F.S., provides in part:

"(12) It is hereby declared to be the legislative intent
that, whenever in the construction, administration, or
enforcement of this chapter there may be any question
respecting a duplication of the tax, the end consumer, or
last retail sale, be the sale intended to be taxed and
insofar as may be practicable there be no duplication or
pyramiding of the tax."

Rule 12A-1.038, F.A.C., provides in part:

"(1) It is the specific legislative intent that each and
every sale, admission, use, storage, consumption or rental
is taxable under Chapter 212, F.S., unless such sale,
admission, use, storage, consumption or rental is
specifically exempt. The exempt status of the transaction
must be established by the dealer. Unless the dealer shall
have taken from the purchaser a certificate to the effect
that the property or service was purchased for resale and
bearing the name and address of the purchaser, the
effective date of the certificate and the number of his
dealer's certificate of registration... the sale shall be
deemed to be a taxable sale at retail...."

DETERMINATION

The facts presented set forth that Equipment Owner acquired
tangible personal property and properly paid Florida sales tax
on the purchases. Prior to the equipment being put into
operation, but after the acquisition of the equipment, Equipment
Owner anticipates selling the tangible personal property to
Lessor. Lessor will subsequently lease the property back to
Equipment Owner.

Sales tax is imposed and due on each transaction or
incident, unless the transaction is specifically exempt or the
transaction meets the resale requirements established under Rule
12A-1.038, F.A.C. In the instant case, Equipment Owner
purchased tangible personal property that was not specifically
exempt from sales tax. Equipment Owner did not purchase the
equipment for resale, but rather Equipment Owner purchased the

equipment for use at a tank farm facility. A taxable
transaction occurred at the time the equipment was sold to
Equipment Owner. A separate and distinct taxable transaction
occurs if, after Lessor purchases the equipment from Equipment
Owner, Lessor subsequently leases the equipment to Equipment
Owner. These are discrete transactions and the imposition of
the sales tax on both would not result in double taxation. See
Ryder Truck Rental v. Bryant, 170 So.2d 822, 825 (Fla. 1964), in
which the Florida Supreme Court expressed: "there is no
duplication of tax since each is on a separate and distinct
taxable privilege."

Finding that a duplication of tax will not occur, and
without statutory authority to exclude the original sale from
the tax on the basis that the equipment will not be "used" prior
to the proposed sale/leaseback transaction, it is the position
of the Department that Equipment Owner will not be eligible for
a refund of sales tax paid on its purchase of the equipment that
it may sell to Lessor.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Sharon Gallops
Technical Assistant

/sg
Cont. #11666